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Mr. Brown: My hon. Friend has been active in pursuing the case for manufacturing industry in the north-west for many years since coming to the House. I believe that industry will welcome the way in which we are going about this. Industry wants stability most of all. We have provided stability over six years and we are saying today that we will do nothing that would put stability at risk.

Bob Spink (Castle Point): Uncertainty.

Mr. Brown: If the hon. Gentleman wishes to compare the record of the Conservative Government with that of the Labour Government on stability or certainty, he will find that he has very little to say to the House.

My hon. Friend the Member for Knowsley, North and Sefton, East (Mr. Howarth) asked about the Monetary Policy Committee. Of course we are in regular consultation with the Bank of England on various matters and several people from the Bank worked on the studies that we produced today.

Mr. David Heathcoat-Amory (Wells): Stripped of its rather desperate camouflage, the Chancellor's statement boiled down to saying that if Britain joined a low-growth and high-unemployment rigid monetary system, it would not be a very good idea. Will the Chancellor be a little clearer about the referendum on which all this will eventually depend? He re-announced that there will eventually be a referendum on the issue, so why is it the Government's simultaneous policy to rule out in advance a referendum on the constitution of Europe, whatever the constitutional implications might be? What is the logic or sense behind those two positions?

Mr. Brown: The first is that the euro is a specific proposal that would change fundamentally the operation of monetary policy in this country. All parties in the House agree that it is a matter for a referendum. Secondly, the Government are not convinced that the proposals that will arise from the European Convention will be as bad as the right hon. Gentleman thinks but believe that they will be in line with the British Government's policies and will not raise fundamental issues of sovereignty, as he suggests.

Mr. Ronnie Campbell (Blyth Valley): When the euro was launched in our partners, all those countries,

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especially Germany and France, and more so Ireland, experienced a steep rise of prices on their high streets. Why should the British people vote for something that will cost them more money?

Mr. Brown: The issues of transition that occur when a currency is replaced with another currency, which caused problems in some European Union countries, are something on which we would keep a very close eye, if we reached that point. We would continue to report to the House on such matters. My hon. Friend rightly raises that subject but it is not an issue for the moment but at the point of transition to a single currency.

Mr. David Curry (Skipton and Ripon): I sometimes wonder whether the Chancellor draws a distinction between the national economic interest and the national interest. As far as the national interest is concerned, there is a great deal of talk about the new Europe that enlargement will bring into existence and the United Kingdom's opportunity to play a leadership role in that wider Europe. Given that there will be a natural gravitational pull toward countries that have espoused the policies that are considered to be central to the European Union, is it not important that the Chancellor bears those facts in mind and gets on with his further assessment at the earliest sensible opportunity?

Mr. Brown: I agree with the right hon. Gentleman on one point: the changes to the European Union, especially the addition of 10 countries, mean that we will have a European Union that will look outwards rather than inwards. The idea of fortress Europe will become a thing of the past and the concept of a trade bloc that exists on its own and is obsessed by its internal rule will change partly because of enlargement and partly because we must meet the needs of competition in the global economy. However, I would not jump from that to saying that irrespective of achieving convergence and flexibility, we should jump into membership of the European single currency. It is necessary to ensure that we have convergence and flexibility that will enable us to live with euro interest rates permanently while advancing our goals of high and stable levels of employment and the proper funding of public services.

When considering those matters, I hope that the right hon. Gentleman will agree with his colleague the right hon. and learned Member for Rushcliffe (Mr. Clarke), the former Chancellor, that the five tests have a great deal to say for them and that it is necessary to meet them to ensure that potential benefits for trade, investment and co-operation with other EU countries are fully realised.

Mr. Ian Davidson (Glasgow, Pollok): May I congratulate the Chancellor on ensuring that the decision, which as I understand it is clear and unambiguous, that it is not in Britain's interests to join at the moment is based on economic grounds, not on dogma? Can he assure us that any future review will be taken on similar grounds? Can he tell me how I can expect to inform people in my constituency that in order to get ready to join the euro we need to see an increase in postcode pay—in differentials—according to where people live? Does he not believe that if we want to

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become truly European on labour matters, we need to accept the information and consultation directive as soon as possible?

Mr. Brown: I think that the rest of Europe is warming to the tax and benefit integration that we propose. It recognises that social cohesion depends on a proper system of remuneration for people who might otherwise be the lowest paid workers in a community. That is why the tax credit system is important. I disagree with the conclusions that my hon. Friend draws about flexibility in the labour market. If we are to achieve full employment in every region of the country, we have to determine what other barriers to employment opportunity exist in those regions. The Secretary of State for Work and Pensions is examining how the Employment Service can do far more. Many people are unemployed in my hon. Friend's city who could be brought back to work quickly.

However, we have to get the right balance between the fairness on which we insist—and on which the Conservatives would not insist—and the flexibility that is necessary in a modern economy to get the benefit of all the opportunities available. I hope that on reflection my hon. Friend will agree that the best strategy to get full employment in his city and his country is to combine the tax credit system with the reform of the Employment Service, to ensure that the new deal works effectively for the long-term unemployed or youth unemployed, and to get the flexibility needed to ensure that we have policies that adjust to the circumstances faced in different regions.

Mr. Andrew Tyrie (Chichester): This statement was drafted somewhere in a corridor between No. 10 and No. 11 and, frankly, it sounded like it. For the past six years, the Chancellor has told us that he is firmly in control of the decision. Indeed, he made that absolutely clear when he recently came before the Treasury Committee on which I serve. After the extraordinary events of the past few weeks, with the titanic struggle over the drafting of the statement between No. 10 and No. 11, can he assure the House that he is still in control of the decision?

Mr. Brown: The hon. Gentleman heard me speak at the Treasury Committee and he has heard me speak today. The policy that we are pursuing is the policy of

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the Government. It is the right policy. It would be better from his point of view, as someone who has supported many of the changes that I am bringing about, if he directed his attention to the policy rather than the personality issues.

Mr. Geoffrey Robinson (Coventry, North-West): Is my right hon. Friend aware that there will continue to be widespread support on the Labour Benches for his continued adherence to the five tests and, indeed, for the economic reform agenda that he announced today? I am sure he can reaffirm that the adoption of the consumer price index in no way implies the shadowing of any decision that might be taken by the Central Bank and that he would not, as he made clear in his statement, allow decisions in Europe to affect the sustained public investment programme, which is so necessary not just for the reconstruction of our public services, but for avoiding deflation that might otherwise occur.

Mr. Brown: I am grateful to my hon. Friend for raising that and for his work on promoting our country's industries, especially in the west midlands.

On the inflation target, we are moving to the internationally accepted definition of consumer prices. It is a far better definition with a greater quality of information provided to influence the announcements of price indices. I believe that if the rest of the G7, excluding Japan, operate to that system, it is better to have an internationally valid system of comparison if at all possible. That is why it is right in itself as well as something that brings about greater convergence with the European Union.

On the ERM, let me repeat what I said about monetary policy: we do not propose to rejoin the exchange rate mechanism. As for public investment, my definition of sustainable convergence is that we can live permanently with the euro interest rate while maintaining our programmes for the funding of public services and for high and stable levels of growth and employment. I believe that that is the best way forward for our country.

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